As its head count shrinks, GTSI Corp. is grouping

With a shrinking head count, is Herndon-based GTSI Corp. struggling to hold onto talent or tactically downsizing? Perhaps a bit of both.

Last week I reported that GTSI’s workforce dipped considerably in the last 15 months, due in part to the fallout from the company’s temporary suspension from federal contracting. During the four months following that October 2010 decision by the Small Business Administration, which stemmed from allegations that GTSI was funneling small business contract dollars to its own coffers, 103 employees left the company. Sterling Phillips, GTSI’s CEO, confirmed during a March conference call with investors that most of that total resulted from the suspension. (He specifically noted that 30 people were laid off and 73 quit.)

Combine those departures with the loss of 104 employees that came earlier in 2010, mostly due to a company restructuring, and GTSI’s head count has gone from 638 full-time employees to 431 in a year’s time.

First, let’s state the obvious: One can figure that some of the post-suspension exits are the result of lost work opportunities and employees’ own efforts to distance themselves from the situation, which has become the de facto example used by market analysts for why small business contract programs warrant an overhaul. (The situation remains unresolved, with the SBA’s investigation ongoing, even after the agency lifted GTSI’s suspension with numerous strings. That state of limbo also has to leave employees a little anxious.)

Obviously, the voluntary departures are not good news for GTSI. Investors don’t like to see an exodus — even a small one — particularly when it could have been spurred by the company’s own alleged actions.

Also not great news for GTSI was one of the more high-profile departures that came quietly in February when Sandra Gillespie resigned as senior vice president. Gillespie, who acted as interim CEO immediately after Scott Friedlander resigned in the wake of the SBA action, is now the federal vice president of Capgemini Government Solutions in Herndon. Gillespie made no comment on why she left, but her departure so soon after Sterling was hired as president and CEO to relieve her of the interim position doesn’t look so great from a public perception standpoint.

So then — is GTSI scrambling to fill the positions left vacant?

Not entirely, it seems. As of March 28, GTSI’s website listed 26 job openings — 18 of them in Virginia. Practically speaking, that makes sense; the company isn’t in any position to initiate a massive hiring effort this soon after reporting a decline in fourth-quarter revenue of 21 percent year over year. But beyond that, some tell me we might see a longer-term strategic effort by the company to stay at this more modest size.

One procurement expert told me that “GTSI had been obsessed — and I mean obsessed — with keeping its staff under 500 full time.” He called it an effort by company execs to return GTSI to its smaller-business roots — to scale back after so many years of rapid growth, which may have contributed to the company’s later predicament.

Others might argue that any effort to keep employee numbers down is just an attempt to trim fat, then rebuild gradually.

Though GTSI wouldn’t comment directly on the recent decline in workforce numbers, Phillips noted in a March statement confidence in the company’s ability to recover.

“I have been impressed by the determination and skill of the men and women of GTSI as they are meeting the challenges head-on to restart business activities with a focus on ... putting the company back on a path toward growth and profitability,” he said.

Regardless, with ongoing scrutiny from investors, federal regulators, competitors, and the media, any rebuilding (or rebranding?) by GTSI promises to be an interesting case study to watch.